Canadian Shipbuilding And Offshore And Arctic Prospects

New Policies And An Oil And Gas Bonanza Promise A Bright Future Recent news from the Canadian Arctic and the offshore continues to give promise of a bonanza of oil and gas. Exploration activity is proceeding at a good pace despite the oil glut and the drop in energy prices. The petroleum industry is expecting a big upturn when this exploration results in producton in the late eighties, nineties and into the 21st century.

For several years now Canadian shipbuilding has looked to the Arctic and offshore as the key to expanding its output and the realization of a stable and continuing demand for ships, floating equipment and the many components they require. While several commercial Arctic icebreakers of the most advanced designs have been built in Canada, as well as supply vessels, and a semi-submersible is nearing completion, the big demand has not yet arrived and the majority of shipbuilding work for the Canadian offshore and the Arctic has gone abroad.

Shipbuilding is not the only Canadian manufacturing sector that has suffered during the current recession. Manufacturing generally has declined (as a percentage of the GNP) not only in the last two years but over the last 10 years. During the Second World War and the succeeding 25 years, Canada had emerged as one of the leading medium size industrial countries.

Although still not an industrial giant we were no longer simply primary resource producers — hewers of wood and drawers of water. We had become during the World War II the second largest manufacturer of airplanes and ships for the allied cause, second only to the USA.

In the immediate post war period, shipbuilding was an early casualty when Canada decided to retire from deep-sea operations.

But much of the slack was later picked up by the opening of the St. Lawrence Seaway with the surge of demand for maximum seaway size bulkers and selfunloaders.

Post war naval fleet renewal was also a major factor in keeping the shipbuilding industry alive.

As in other Western industrialized countries, the Japanese and South East Asian incursions in such industries as electronics, textiles and automobiles, have taken a heavy toll of Canadian manufacturing output. Shipbuilding has until recently, weathered the storm rather well in comparison with other Western countries.

A wide variety of ships have been built for both domestic and export in recent years.

The workforce is a skilled one that can switch from type to type without difficulty and this flexibility has kept most shipyards reasonably busy. Of the $C1.5 B worth of new Canadian shipbuilding requirements ordered in 1981/82 over $C1.3 B in orders have gone abroad mainly to Japan and South Korea. Consequently, 1983 will see the economic recession and the international shipbuilding crisis joining to make this year fairly difficult.

I believe that shipbuilding for the Arctic and offshore offers the opportunity to help reverse the recent decline in Canadian manufacturing output. These areas will require specialized, customized vessels, a highly skilled workforce, special metals and components, and a very high level of quality control. So far the advanced ships at the leading edge of Arctic technology have been built in Canada. We believe we have an important lead in this area and we are looking to maintain it. The big threat at the moment is the loss of momentum from declining order books and resulting lay-offs.

At the beginning of 1983, orderbooks in all but two shipyards were scheduled to run out before year-end. At the urging of the CSSRA, the Canadian Government in April announced a program of accelerated procurement of ships: eleven major new vessels as well as modernization of three icebreakers and other small vessels for the Canadian Coast Guard. The departments of Public Works and Fisheries and Oceans are also accelerating their ship procurement. This will mean for the Coast Guard alone expenditures of $C780 M over the next five years. In addition, the Canadian Patrol Frigate Program, a $C2.6 B (1981 $'s) program, will be awarded in July 1983 with shipyard work beginning in early 1984.

As in most Western countries, the maintenance of an efficient shipbuilding defense capability is a major objective of shipbuilding policy. The acceleration of Gov- ernment ship procurement means that shipyards and suppliers will be able to maintain the core of their essential work forces in preparation for naval work and for the next big shipbuilding demand expected for the offshore and the Arctic beginning in a year or two. The demand is likely to be such as to provide a major shot-in-the-arm to Canadian manufacturing activity, not only the shipyards but the many other suppliers and industries, e.g. steel manufacturing, machinery and component manufacturing, electronic companies and consultants.

What does the Canadian offshore and the Arctic mean to Canadian shipbuilding? It is no exaggeration to say that the potential in these areas represents the biggest new market for shipbuilding worldwide. It is not surprising therefore, that the eyes of the international shipbuilding industry are upon us! The Canadian industry has so far benefitted only marginally from explorations in the Arctic and the Atlantic offshore. The overwhelming majority of rigs, supply ships, dredges, etc. engaged in Arctic and offshore activity have been imported into Canada. So far Canadian industry has had significant benefits from research and development and design work but much of the standard manufacturing activity has gone abroad.

My Association has long espoused Government policies which would give a fair chance to Canadian industry to benefit from these resource developments. On January 6, 1983 the Canadian Government announced, in pursuance of the maintenance of a viable shipbuilding industry, a number of broad policies that would give the Canadian industry a fairer chance to participate in this great new domestic market.

Canada has no "Jones Act." Even to this day ships can be brought into Canadian flag coasting registry quickly, without impediment, and in many instances with little (as low as 5% duty) or no customs duty at all. Indeed Canadian policies are still such that a whole ship can be imported into Canada without duty but foreign components for a similar ship built in a Canadian shipyard are subject to customs tariff.

Special concessionary financing is available for foreign buyers of Canadian ships but there is no Title XI type financing for Canadian owners.

Mr. Bumble in Oliver Twist, truly spoke when he said "the law is a ass — a idiot". It is not easy to have laws and rules changed no matter how idiotic they may be. But it seems that the Canadian government at long last is going to give the Canadian shipbuilding industry some of the policy support that applies in virtually all shipbuilding countries in the world.

Much as we would like it, we are not getting a Canadian "Jones Act" but rather a pale variation thereof. There will be a 25/V duty on ships brought into Canadian coasting registry.

Drilling rigs and platforms will be subject to 20% duty. The customs zone will be extended to the edge of the continental shelf.

Ships for Canadian flag deep-sea operation will continue to be allowed free entry.

In the last year or so the major shipbuilding market for Canadian industry has changed from exports and the Great Lakes and West coast fleets, to that serving the Arctic and offshore.

For Canadian industry to participate in this market it is necessary to close all the gaps, loop-holes and "assinine" ele- ments that now favour imported ships and floating equipment.

These policy adjustments were announced on January 6 and are expected to become law in June or July of this year.

The market opportunities for which these policy changes are designed have been the subject of much comment and conjecture for many years. A 1981 CSSRA survey of petroleum companies active in the Canadian Arctic and offshore, identified as "high probability" 110 new vessel and platforms for the Arctic during the period 1982-91. In 1981 Canadian dollars these would cost $13,194 million requiring 2.6 million tons of steel. Taking inflation into account the 1981 Canadian dollar is about equal to the current U.S.

dollar.

For the offshore, essentially the East Coast, the requirements indicated 149 units (ships and floating equipments) at $C12,356 million requiring 776 Kilotonnes of steel.

The above 1981 predictions now seem overly optimistic and few would predict that the period 1982-91 will see development at the rates the above expenditures would demand. There will be slippage.

There is uncertainty and delay at present as to when production will begin. But all the companies engaged in Arctic and offshore exploration are continuing their activities in the knowledge that these Canadian offshore and Arctic petroleum resources will play a significant role in satisfying future energy needs of Canada and the world. The present oil glut is likely to be shortlived and in any case security of supply is essential for the NATO alliance and this alone would demand continued development to the production phase.

As indicated above our 1981 survey identified about $C25 billion worth of shipyard work for the Arctic and offshore during the period 1982-1991 — more recent assessments by other sources indicate the 1983-1992 demand at about $C16 billion. But the total demand figures, i.e. beyond the 1983-92 period have not been significantly reduced.

But even the $C16 billion requirement is much more than the Canadian industry has handled in recent years. Some of the $C16- billion is for 200,000 ton icebreaking tankers and polar icebreaking LNG carriers which Canadian yards cannot build without major yard expansions.

I feel we should expand our facilities to meet these needs if for no other reason than to maintain the capacity to dry-dock these ships. But the fundamental motivation is that these facilities are required to meet unique Canadian needs to exploit the resources in our unique and harsh Arctic and East coast environments.

With these facilities I believe we can develop special techniques and products required in other difficult environments which will lead to export opportunities for our shipbuilding and allied industries. These are opportunities which we cannot afford to miss. They will help the economy and provide meaningful challenging employment for thousands who are now unemployed.

Over the last ten years over 50 % of our new construction output has been for foreign account.

At the same time we have been importing ships in greater numbers because of "assinine" laws.

These are about to be corrected in anticipation of the Arctic and offshore boom. The Canadian shipbuilding industry must look to the future with confidence, enthusiasm, and vigor to make these predictions come about.